Q1 2021 Alamos Gold Inc Earnings Call
And your patience.
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This conference is being recorded so it's cool sales that don't go as you see.
All participants please standby your conference is ready to begin.
Good morning, I would now like to turn the meeting over to Mr. Jamie Porter Chief Financial Officer. Please go ahead.
Thank you operator, and apologies to everyone on the on the line for a few minutes late getting started and given some some issues with.
The operator, there, but we're ready to go now.
Thank you for attending Alamos since first quarter, 2020 One conference call and addition to myself we have on the line today, both John Mccluskey, our president and CEO and Peter Macphail, Our C O.
We will be referring to a presentation. During the conference call debt is available through the webcast and on our website I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward looking statements. During the call. Please refer to the cautionary notes included and the presentation news release and MD&A as well as the risk factors set out and our annual information form.
Technical information in this presentation has been reviewed and approved by Chris Bostwick, Our Vice President of technical services and a qualified person also please keep in mind that all the dollar amounts mentioned in this conference call are in United States dollars, unless otherwise noted and with.
That I will turn it over to John to provide you with an overview.
Okay.
Thank you Jamie.
We've had a solid start to the year, producing 125800 ounces of gold and the first quarter at total cash costs of $757 per ounce and all in sustaining costs.
$1030 per ounce.
Our costs were in line with guidance well production exceeded the high end of our first quarter guidance. This was driven by particularly strong performances at island gold.
Which set another quarterly record for production and young Davidson, which exceeded this target with underground mining rates and achieving a new record.
We remain well positioned to meet our full year production and cost guidance.
This drove another good quarter financially.
Operating cash flow of $120 million increased 46% from a year ago supporting strong ongoing free cash flow, even with the ramp up of development activities.
Randy on the phase III expansion at island gold.
Looking at slide four.
This past week, we announced we'll be filing and a $1 billion investment treaty claim against the Republic of Turkey.
Expropriation, and unfair and and equitable treatment with respect to our Turkish development projects.
And 18 months since our mining license expired.
We've received all permits required to build Crossly, we were well into construction and we've met all legal and regulatory requirements for the renewal of our licenses.
We've attempted to work cooperatively with the Turkish government, Yes, we have not received a reason for the non renewal.
Nor have we received a timeline for when our licenses will be renewed.
We're optimistic that the arbitration process will bring about a positive resolution.
And looking at slide five.
We continue to advance our strong pipeline of North American growth projects.
Development activities are ramping up on the phase III expansion at island Gold, where we recently announced a 1 million ounce increase and high grade reserves and resources.
This growth and ongoing exploration success highlight significant upside potential.
To the already attractive economics outlined and the phase III expansion study published last year.
Construction activity certainly Yaqui Grande continue to wrap up with a project on track to get low cost production and the third quarter of 2022.
Permanent and Lynn Lake is advancing and expect it to be completed around the middle of next year, putting us in a position to make a construction decision on the latter part of 2022.
We've had a good we've had good exploration success over the past few years, we've increased reserves by 27% to $2 1 million ounces, we see excellent further potential around the existing deposit and regionally across 80 kilometer long greenstone belt that we have consolidated.
We're ramping up our exploration efforts accordingly.
These projects are all key components of our strong outlook with 50% production growth potential for approximately 750000 ounces per year by 2025 at significantly lower all in sustaining costs of around $800 per ounce.
This will support substantial free cash flow growth over the long term and.
In the meantime, we can more than fund this growth internally, while continuing to generate strong ongoing free cash flow and support our recently increased dividend.
Although I will now turn the call over to our CFO Jamie Porter.
To review our financial performance.
Thank you John.
Moving on to slide six.
We sold 126500 ounces of gold and a realized price of $1798 per ounce for record revenues of $227 million and the first quarter.
Total cash costs of $757 per ounce and all in sustaining costs of $1030 per ounce were in line with guidance. Despite the impact of the stronger Canadian dollar and Mexican peso.
Our 2021 guidance provided last December was based on a Canadian dollar foreign exchange rate of 75 at the current Canadian dollar foreign exchange rate of approximately 81.
Our total cash costs and all in sustaining costs would increase by approximately $30 per ounce with a similar impact realized in the first quarter.
Operating cash flow before changes in noncash working capital improved 46% year over year to $120 million or <unk> 30 per share and the first quarter on.
Our reported net earnings for the first quarter were $51 million adjusted net earnings of 49 million or <unk> 13 per share represented a 63% increase over the prior year period.
Looking ahead to the second quarter. The decision to proceed with the bilateral investment treaty claim against the Republic of Turkey is an impairment trigger for accounting purposes, as such we expect to incur and after tax impairment charge of approximately $215 million and the second quarter, representing the full carrying value of our Turkish assets.
This is a non cash charge that we expect to exclude from our adjusted earnings.
Capital spending totaled $73 million, and the first quarter, including $24 million of sustaining capital $44 million of growth capital and 6 million and capitalized exploration. We also incurred $17 million of capital advances related to work and equipment for La Yaqui Grande and the phase III expansion at island gold.
Aggregate increase in spending and the quarters consistent with full year capital guidance of between 354 and $384 million and reflects the wrap up of development activities on our growth projects.
Net of all capital spending and capital advances, we generated $10 million of free cash flow. This was also net of $18 million of cash tax payments in Mexico, and the majority of which related to the 2020 year.
We paid a quarterly dividend of $10 million and the first quarter, representing a 25% increase from the prior quarter and were active under our share buyback repurchasing $1 5 million worth of shares in total we returned more than $11 million to shareholders and the first quarter and are on track to return more than $40 million for the full year.
We ended the quarter with 238 million and cash $27 million of equity securities and $500 million of Undrawn credit capacity, we remain well positioned to fund our internal growth projects, while continuing to grow our cash position and returns to shareholders.
With that I'll turn the call over to our COO, Peter Macphail to provide an overview of our operations.
Thank you Jamie.
Moving to slide seven we had another excellent quarter at young Davidson, producing 48000 ounces and generating mine site free cash flow and $22 million.
This was the second full quarter operating to the new lower mining infrastructure and the operation continues to demonstrate its potential mining rates increasing to average a record 7800 tonnes per day exceeding our targeted rate of 7500 tonnes a day.
We continue to expect mining rates and 7500 tonnes, a day and the second quarter with another mining horizon being added and the second half of 2020 one and.
Enable us to increase mining rates and a sustained 8000 tonnes a day.
Mill throughput also increased average a record.
$81 50 tons per day, this exceeded mine mining rates, reflecting the processing of additional ore that was mined and stockpiled in the fourth quarter of last year.
We expect milling rates to match mining rates going forward.
Total cash cost of $873 per ounce and mine site all in sustaining costs of $1075 per ounce were both down significantly from a year ago with the Northgate shaft was shut down to complete tie and nickel ore mined.
Costs were above annual guidance and the first quarter due to the stronger Canadian dollar as well as the planned mining somewhat lower grades and your earlier and the year.
Grades mined are expected to increase through the year and combined with higher mining rates and this is expected to drive production higher costs lower and the second half of 2021.
Higher production and lower costs and lower capital spending are all expected to contribute to record mine site free cash flow of more than 100 million from young Davidson into 2020 one.
Moving to slide eight island gold generated $26 million mine site free cash flow from record production of 42002 hundred ounces driven by higher grades mined.
And as previously guided grades mined and processed are expected to decrease through the year and average approximately 10 grams per tonne for the full year.
Total cash costs of $466 per ounce and mine site, all in sustaining costs and $732 per ounce were both consistent with annual guidance. Despite the stronger Canadian dollar.
Following up on a very successful 2020 exploration campaign, and we wrapped up our exploration efforts at island gold and the first quarter.
The majority of the results remain pending and given the longer turnaround times for assays being seen across the industry, but we're expecting that to improve and the second quarter.
Work on the phase III expansion is ramping up with a focus on advancing permitting and detailed engineering and the shaft and associated infrastructure and the procurement of long lead items.
Growth capital spending totaled $12 million and the first quarter is expected to increase through the rest of the year consistent with annual growth capital guidance of $80 million to $85 million.
Moving to slide nine <unk> produced 35006 hundred ounces and the first quarter total cash costs and mine site all in sustaining cost of 915, and 1039 ounce per ounce respectively.
Mining activities and the first quarter were focused on sort of per loan, which along with existing surface stockpiles supplied the majority explore stocked in the quarter.
Mining activities within the main them allowed us pit, we're focused on pre stripping the el salto portion of that debt.
With the $18 million on.
Cash tax and E payments, mostly related to last year and the ramp up of spending a lot Yaqui Grande.
And lots of mine site free cash flow was negative $24 million.
Excluding the $30 million of growth capital and capital advances related to La Yaqui Grande and watch us would've generated $6 million of mine site free cash flow.
Moving to slide 10, as you can see and the photo construction of La Yaqui Grande is well underway.
Cam facilities are nearly complete and we now have approximately 800 employees and contractors on rotation.
Capital spending was focused on advancing earthworks for the waste rock dump heap Leach facility and the water treatment plant and pre stripping of the open pit.
Over 3 million tons of waste were mined during the quarter.
With the contract and reach of mining rates of about 48000 tonnes per day by the end of March.
The project remains on track to achieve commercial production and third quarter of 2022.
With mine site, all in sustaining costs expected to average $850 per $580 per ounce La Yaqui Grande is expected to significantly reduce the cost profile and blocked.
Laughter and operation.
Ill turn the call back to John.
Thank you very much Peter.
And.
Now we're going to open the culture.
Two questions. So now I'll turn the call over to the operator, who will get that started.
Thank you we will now.
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The first question is from Tyler Langton of Jpmorgan. Please go ahead. Your line is now open and good.
Good morning, and thanks for taking my question I guess just to start with Crosby, I mean and sort of recognizing that the the process can take them. Some time to kind of run its full course, but I guess are there any sort of near term on my.
Also and that we should be looking for.
Not particularly.
Going into this.
With.
And the expectation that it may well just run the.
The full course gold go through a full arbitration, but theres always the possibility that some.
Sometime over the next year, we come up with some sort of negotiated settlements and so that's the way this arbitration processes designed it's.
It's designed to bring the parties together under the auspices of the tribunal with.
Expectation of the intent at least.
To come to some sort of negotiated settlement and if that's not achievable and it goes to the next stage. So we'll just have to follow the process.
Okay and then.
And you called out sort of I guess the impacts that.
And that exchange rates or could have on cost. This year, but are you seeing sort of I guess, just any signs of inflationary pressures from labor or materials to sort of and the day to day operations and then.
And the more I guess with them you know the phase III expansion and island gold and all.
And you kind of remind US you know sort of how much capex is left to be spent and are there any sort of potential are you sort of pressures there for that for that capital budget.
It's Peter here I you know on.
On the inflationary pressures certainly not labor you know.
Labor rates and you know.
Relatively stable.
You know a few things a few inputs steel a little bit higher but it looks like it's.
It's a temporary thing.
So it really hasnt really hasnt impacted our bottom line at this point and you know.
And I guess, who knows but.
We're not expecting it to materially impact us.
Got you okay. Thanks, so much.
Thank you.
The next question is from Fahad Tariq of Credit Suisse. Please go ahead. Your line is now open.
Hi, Good morning. Thanks for taking my question you had mentioned the cost impact on potential cost impact on different you know foreign exchange rates and the sensitivity, particularly on the aid and U S. A and exchange rate on me.
Talk about kind of the hedging strategy.
Over the past year and also going forward I know some peers for example cut to Bakken and more favorable rate and 2020, and just want to get your thoughts on on hedging.
Yes.
Thanks, Jamie here.
We look for opportunities over the course of the past nine to 12 months to lock in more of our Canadian dollar exposure, but the other.
And the way that the Canadian dollar has been strengthening and and more or less.
Great line, all over that period, there wasn't much and the way of opportunities to do so so I think we have 8% of our remaining 2021 exposure hedged debt.
Well below 80.
We'll look for opportunities to do more if if there's weakness and the Canadian dollars, but as I said, we haven't seen that.
Yeah.
Late Unfortunately, we are very well covered and in Mexico, We've got about 80% of our exposure hedged between 'twenty, one and 24, which.
The contracts are very favorable relative to current spot. So so that's where we're at currently what we will continue to look for opportunities to do more but.
Theres certainly non currently.
That's helpful. Thank you.
Thank you.
Yeah.
The next question is from Lauren Mcconnell of paradigm capital. Please go ahead. Your line is now open.
Good morning, John Jamie and Peter Congratulations on a good quarter I just had a question on island I know, there's a history of positive reconciliation.
And I just wanted to know what that 13 quite two grams per ton that you mined this quarter was that in line with what you were expecting on the reserve model or are you still seeing positive reconciliation that island.
Now that that is in line with what we were expecting it reconciled quite well we've you know.
Over the years debt.
Oh and it made changes to the reserve model and.
We don't really see.
Significant positive reconciliations.
For the last couple of years, it's true, it's behaving quite well.
Okay, great. Thank you.
Thank you.
The next question is from Cosmos <unk> of CIBC. Please go ahead. Your line is now open.
Hi, Thanks, John Jamie Peter and team.
Maybe first off on young Davidson here as.
As you mentioned.
To see that you were able to get to almost 7800 tons per day, when and where you were targeting 7500 tonnes per day in terms of mining rates underground and on that point could you give us some key highlights in terms of how you are able to and I'll come to a a throughput that was higher than what your targeted and then the second part.
My question is it sounds like it's not yet repeatable yet in Q2, you're still targeting 7500 tonnes per day.
And Q2 and why is it not repeatable.
Yeah.
Okay.
We are striving to do better than that and.
And our plan.
You know a few things went and lined up in Q1 debt debt that helped us beat it. We just you know we had a good quarter.
And you beat it in Q4, if I'm not mistaken, it's well beat that.
7500 tonnes a day book.
And we plan.
And we're planning for 7500 tonnes a day for Q.
Q2, and ramping up to two 8000 tonnes a day for the rest of the year and what we are.
To facilitate that we're bringing on another mining horizon, which will which will help us do that.
Can we do better.
Who knows.
I wouldn't expect 8000 and.
I'm, just I'm still expecting 7500.
Okay.
And I guess, what you mean, but I guess, Peter you know how did you beat it in Q1 day and could you tell us.
And one or two key highlights for it.
And it kind of surprised you or.
What what happened.
You know it's it's.
It's just.
They aren't being there and and.
And it continues to be there. So it's just being able to moving getting getting familiar with the new infrastructure. It takes a while to to trusted and and.
Figure it all out so.
The difference between 7800 tons, a day and 7500 tonnes a day and.
It's not that huge a difference frankly, so I wouldn't I wouldn't say, we knocked it out of the park. It's a it's nice to be on the higher side of that we might be maybe it will be.
At quarter.
And a couple hundred tonnes a day below our target. It's it's it's always going to vary up and down within.
A little bit and at least.
Gotcha, Thanks, Peter and then maybe as you touched on it the new mining horizon here.
Can you talk a little bit more about you know maybe the location and you know, whereas this new mining horizon, and then can you remind us how many areas of your mining and at this point and time.
Yeah, I mean, yeah.
So we have a couple of mining horizons, and the and the upper part of the mind that we're continuing to mine and this one actually is another one that would be at the upper part of the mine Mark to the on on the Western Western flank. We've got a couple of mining horizons and the lower part of the mine. So you know and it varies from time to time between.
345 mining horizons.
We.
We've cycled through and is maybe about 100, stopes and a year and and.
And have at any given time 30 stopes online. So that's that's kind of the mix.
Okay, Great got it and then Peter as you talked about you know you're still trying to trying to.
I understand and I understand you're getting familiar with and.
The lower mine infrastructure as you as you mentioned and.
At this point and time any areas that you think might be limiting factors as it orbits to conveyor or everything's running fairly.
As you would have expected.
This is so much.
And so much better than what we had at the mid mine that was frankly built for 6000 tons a day and it and also frankly put in as a sort of and in term measure to get to the lower mine.
And I think we have something like 10 times more bidding capacity, we have additional skipping capacity, we have conveying instead of trucking all of those things helped us.
Help us make our numbers.
We're in good shape.
Mhm.
Great maybe switching gears a little bit are.
La Yaqui Grande you know what I think.
You know there's already been some discussions in terms of you know inflationary factor and potential or maybe not no issues in terms of.
The impact on cost could you comment on La Yaqui Grande you know any kind of inflationary factors that we should be aware of that we should be concerned about in terms of capex.
We haven't we haven't seen any we're well into construction I mean, most of the capex associated with La Yaqui Grande as Earth, moving really pre stripping building leach pads.
Putting line are down we ordered the lack of the liners on site came in on budget.
And you know our mining contract is a fixed rate per ton and so.
Sort of diesel moving around and a lot.
I.
Don't really see much opportunity for.
Inflationary pressures on them.
And that's good and and that leads me to my second question here I guess it all as US can you remind me I guess you know when is the rainy season, and Mexico I think it's coming up and are there any key things that you want to wrap up and then finish ahead of the rainy season or is the rainy season, not really and impact not an issue.
And the northern part of Mexico.
No we do have a rainy season and it was kind of.
August September and started in July a little bit.
And.
And you try not to do certain things you try not to be doing quaint liner on your leach pad during the rainy season, and that's about the only thing that you view the underlying or that's the only thing try not to do and we're well ahead of that and it's not going on I'm not going to be an issue.
Sounds good and then maybe one last question or just to wrap things up.
And I guess you know your Capex budget for the years 320 million to $350 million you did about $73 million and Q1 could you maybe give us a bit more granularity in terms of.
And the remainder on how that's going to be distribute it throughout the remainder of 2020 one.
Cosmos, it's Jamie here, Yeah, I can tie day.
And it should be pretty evenly distributed.
You will note we had I think.
$16 $8 million zone.
And we classify as capital advances and the first quarter as well so that's oh thats on long lead items and other contract or advances. So if you factor that in the actual cash spending was a bit higher in Q1, but overall I would expect that capital and capital to be incurred pretty evenly.
Great. Thanks, a lot guys those auto questions I have thank you.
Thank you.
The next question is from Mike Parkin of National Bank. Please go ahead. Your line is now open.
Hey, guys. Thanks for taking the questions and congrats on certainly a solid start to the year.
Following up on Cosmos question's on young Davidson.
And just with respect to the stopes and I know they've always kind of been massive but is there any movement to using larger stopes are in the underground now or is it pretty much you know similar sizes to what you've been.
Extracting for the last year or so.
Yeah, Mike I guess, it's it's Peter here and the upper mine, our stope height was 30 meters and and the lower mine, we've gone to 35 meters.
And.
The law and mine tends to have wider zones as well so thickness into the page. If you like I think we would have.
I can't remember the numbers exactly but we might've been averaging 20 meters and the upper mine and more like 30 meters and and the lower mine.
Yes.
So.
Stopes tend to be or are on average bigger and some more tons per per stope on average.
So generally you're you're set up well to have that as a tailwind for you as you open up.
The lower mine and then yes in terms of productivity, Okay. That's great.
Most of my questions were answered just one more on island I know you guys were planning to do a bit of regional exploration last year that got delayed due to COVID-19 plans are to do it this year.
What could or you know timeframe in terms of news flow around that be obviously, you're having great success at the actual island mind just wondering.
Now if you stumble upon something else that's interesting when could we maybe see initial results.
Yeah, I guess the ear.
Progresses I mean, we've we we do have one drill let's say that's going to be.
Poking around more regional targets, but.
Continue to have.
Sort of half or three on surface and a couple of underground as well drilling so.
Yeah, we've got lots of exciting things to look at and the regional setting and.
I can't give you a timeframe on when you will see results.
Currently waiting for assays on some of those holes. So there you go.
Alright, well that's it for me guys. Thanks, so much.
Thank you.
The next question is from John Tumazos of John Tumazos very independent research. Please go ahead. Your line is now open.
Thank you for taking my question.
And with a de emphasis of the Turkish projects.
Or will you reallocate our management time and resources.
I mean, a little more attention for Lynn Lake.
Does this mean, a little more exploration budget or potentially a property acquisition.
Separately I just wanted to commend you for your adherence.
To the foreign corrupt practices Act.
Not caving and to troubles and the third world and.
If you need to commemorate several thousand genocides and addition to the army and genocide. My family can help you with that content and history. Thank you.
I'm kidding, a little bit and I commend and what Youre doing.
This is.
John Mccluskey and I'll take your question and just to say that we were not.
We were not sacrificing our budget or.
Management.
And.
On the back of what we were involved with and Turkey essentially everything.
And everything going on in the company was.
Was being.
Well managed.
And listen to Turkey, So I.
I would say that given the fact that we werent doing any work.
And Turkey.
Over the last year the bulk of the.
Of the responsibility for what was going on was really being handled by.
On the Turkish team, we have about 16 people employed and Turkey.
We will be reducing that team of course going forward.
But given the fact that they were and where the ones responsible for what was going on and after that.
And for the vast majority of the work and there's going to be really no no big change to the way we manage things.
Yeah.
Good for sticking up here right.
Thank you.
Thank you.
The last question is from Kerry Smith of Haywood Securities. Please go ahead. Your line is now open.
Thanks, operator, John when does the claim.
For Cherokee actually get filed and like how long does it take to file that claim.
And just generally.
Within a couple of weeks when you announce.
And that youre going to be filing a claim.
You you would actually file the actual claim.
So.
It starts out with.
Secondly, something like this with the news release and our notice and then you and.
And then you move it forward so.
And it's something that.
You do a fair amount of preparation on.
And so we were well prepared.
And to the announcements so it won't be too long.
Okay, great, Thanks, and Peter and Q2 are there any large maintenance no maintenance shutdowns planned debt.
Whiting.
I mean, we had maintenance shutdowns every quarter, but nothing nothing.
Okay.
And I think that.
Would impact the numbers.
Right, so nothing extraordinary and basically there's no no okay.
Okay Gotcha.
And when does the pre strip, but also actually finish and will.
Will the ore that's left and not paid actually running through to the start up public Yaqui Grande.
I'm sorry, when does the when does the pre strip at El Salto finishes.
Yes.
Towards the end of this year and.
And yes, we haven't obviously, you know we have enough or between and and.
And in excess.
Between.
Yeah molecules.
And the SaaS stockpiles and share a prolonged.
All three of those sources to well take us to the start of.
And I could Grande.
Got you, Okay and.
And then just the last question on the new hedges that you added post the end of the quarter, Jamie is 46000 ounces.
True to the end of this year would that kind of be evenly spread over the course of the next nine months and if that is that the way to model it.
Yes, that's right Gary.
Okay. Okay. That's great. Thanks, very much guidance.
Thank you.
And there are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered. Please feel free to contact Mr. Scott Parsons at four one and 63689 and 932 extension 543 and nine.
Please disconnect your lines at this time and we thank you for your participation.
Okay.
Okay.
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Militarily once again, please continue to standby we thank you for your patience.
And now some of that you have we lapped a silty duckenfield they'd be tough super simple pretty on the beautiful what the old work and it gives us, though and you will see on the best guilty.
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